FDI flows to Africa fell to $54 billion in 2015, a decrease of 7 per cent over the previous year. Dynamic flows into Egypt boosted FDI to North Africa, which rose by 9 per cent to $12.6 billion in 2015. Yet this was offset by decreasing flows into Sub-Saharan Africa, as lower commodity prices depressed FDI inflows in natural-resource-based economies. FDI inflows to West Africa declined by 18 per cent to $9.9 billion, largely because of a slump in FDI to Nigeria. FDI flows to Central Africa fell by 36 per cent to $5.8 billion, as FDI flows to commodity-rich Congo and the Democratic Republic of the Congo declined significantly. East Africa received $7.8 billion in FDI – a 2 per cent decrease from 2014. FDI flows to Kenya, however, reached a record level of $1.4 billion in 2015, resulting from renewed investor interest and confidence in the country’s business climate and booming domestic consumer market. In Southern Africa, FDI flows increased by 2 per cent to $17.9 billion, mainly driven by a record $8.7 billion inflows in Angola, largely due to intracompany loans. Lacklustre economic performance, low commodity prices and higher electricity costs pushed FDI in South Africa to $1.8 billion – the lowest level in 10 years.
FDI outflows from Africa fell by 25 per cent to $11.3 billion. Investors from South Africa, Nigeria and Angola reduced their investment abroad owing to factors such as lower commodity prices, weaker demand from main trading partners, and depreciating national currencies.
FDI inflows to Africa are expected to return to a growth path in 2016, increasing to $55–60 billion. This increase is already becoming apparent in announced greenfield projects in the first quarter of 2016, particularly in North Africa, but also in Mozambique, Ethiopia, Rwanda and United Republic of Tanzania. FDI flows are expected to increase in Kenya and the United Republic of Tanzania which now allow 100 per cent foreign ownership of companies listed on their stock exchanges. Furthermore, privatization of State-owned commodity assets in countries such as Algeria and Zambia should also provide a boost to inflows.
Developing Asia, with FDI inflows reaching $541 billion – a 16 per cent increase – remained the largest FDI recipient region in the world. The growth was primarily driven by increased FDI in East and South Asian economies. In East Asia, FDI rose by 25 per cent to $322 billion, reflecting large equity investments related to a corporate restructuring in Hong Kong (China) and dynamic FDI flows to China’s services sector. In South-East Asia, FDI to low-income economies such as Myanmar and Viet Nam soared, but this was offset by the lacklustre performance of higher-income countries, including Singapore, Indonesia and Malaysia. India’s and Bangladesh’s FDI performance pushed inflows to South Asia to $50 billion, an increase of 22 per cent from 2014. India became the fourth largest recipient of investment in developing Asia and the tenth largest in the world. In West Asia, rising inflows to Turkey partly offset the negative impact of commodity prices and geopolitical challenges on FDI to oil-producing economies, resulting in an overall 2 per cent decline to $42 billion.
After the jump in values recorded in 2015, FDI inflows are expected to revert to their 2014 level. Data on cross-border M&A sales in the first quarter of 2016 and announced greenfield investment projects support the expected slowdown.
Despite the decline in outflows from developing Asia by 17 per cent to $332 billion, the region’s outward FDI in 2015 remained the third highest ever. Outward FDI from a number of Asian economies, including China and Thailand, increased. With outflows worth $128 billion, China remained the third largest investing country worldwide. After a surge of outward FDI in 2014, flows from Hong Kong (China) more than halved to $55 billion, due to a large corporate restructuring. South-East Asia’s outward FDI decreased by 11 per cent to $67 billion, due to a decline in outflows from Singapore. Outward FDI from India, South Asia’s dominant investor, dropped by more than one third which resulted in an overall 36 per cent decline of outflows from the region to $8 billion. Outflows from West Asia, in contrast, soared by 54 per cent to $31 billion mainly due to a turnaround by Kuwait – a major investor in the region.
FDI to Latin America and the Caribbean – excluding the Caribbean offshore financial centres – stayed flat in 2015 at $168 billion. There were contrasting performances in Central and South America, however. FDI flows to Central America rose by 14 per cent to $42 billion, thanks to strong flows to Mexico and higher FDI in manufacturing across the subregion. FDI flows to South America, on the other hand, contracted by 6 per cent to $121 billion, reflecting slowing domestic demand and worsening terms of trade caused by falling commodity prices. FDI flows to Brazil, the region’s principal recipient, fell 12 per cent to $65 billion. The decline in commodity prices also significantly affected flows to the Plurinational of State of Bolivia, Chile, Colombia, and Peru. In Argentina, FDI surged, albeit compared with abnormally low flows in 2014.
FDI outflows from the region rose by 5 per cent to $33 billion in 2015. In Brazil, outward FDI expanded by a strong 38 per cent, an increase predominantly reflecting a significant reduction in reverse investment by Brazilian foreign affiliates. In Chile, outflows rose 31 per cent to $16 billion. FDI flows to the region may slow down further in 2016 as challenging macroeconomic conditions persist. In 2015, the value of announced greenfield projects dropped 17 per cent from their 2014 level, led by an 86 per cent decline in the extractive industry. Lower announced project values were also registered in the services sector. On the upside, national currency depreciation may motivate the acquisitions of assets. Cross-border M&As in the first quarter of 2016 were sharply up thanks to higher sales in Brazil, Chile and Colombia.
In 2015, FDI flows to transition economies fell by 38 per cent to $35 billion. The FDI performance of transition subgroups differed: in South- East Europe, FDI inflows increased by 6 per cent to $4.8 billion, as better macroeconomic conditions and the EU accession process continue to improve investors’ risk perception. In contrast, FDI flows to the Commonwealth of Independent States (CIS) and Georgia declined by 42 per cent to $30 billion in a situation of low commodity prices, weakening domestic markets, regulatory changes, and the direct and indirect impact of restrictive measures/geopolitical tensions. Flows to the Russian Federation slumped to $9.8 billion as new FDI almost dried up due to the scaling back of operations and a string of divestment deals. The economic crisis and regulatory changes in the country have also reduced the scale and scope of round-tripping FDI.
MNEs from transition economies more than halved their FDI flows abroad. Geopolitical tensions, sharp currency depreciation and constraints in capital markets reduced outward FDI to $31 billion in 2015 – a value last recorded in 2005.
After the significant decline recorded in 2015, FDI flows to transition economies are expected to increase modestly in 2016, barring any further escalation of geopolitical tensions in the region. In the CIS, several countries, including Kazakhstan, the Russian Federation and Uzbekistan, have announced large privatization plans, which if realized, will open new avenues for foreign investment.
Flows to developed economies nearly doubled to $962 billion due to buoyant cross-border M&As sales. Inflows to Europe rose to $504 billion, accounting for 29 per cent of global inflows. This rebound was driven by large increases in Ireland, Switzerland and Netherlands. Other major recipients were France and Germany, both of which recovered sharply from the low points in 2014. Inflows into the United Kingdom fell to $40 billion but remained among the largest in Europe. In 2015, FDI inflows to North America reached $429 billion, surpassing the record high of 2000. In the United States FDI almost quadrupled, albeit from a historically low level in 2014.
In 2015, MNEs from developed economies invested $1.1 trillion abroad – a 33 per cent increase from the previous year. Europe became the world’s largest investing region owing to a strong rebound in their cross-border M&A purchases. Foreign investment by MNEs from North America remained flat, with a significant increase in outflows from Canada being offset by a moderate decline of flows from the United States. Japanese MNEs continued to seek growth opportunities abroad, investing more than $100 billion for the fifth consecutive year.
Barring another wave of cross-border M&A deals and corporate reconfigurations, the recovery of FDI activity recorded in 2015 is unlikely to be sustained at the same level in 2016. Recent regulatory measures meant to curb tax inversion deals are likely to discourage cross-border M&A deals and corporate reconfigurations. In addition, the economic growth momentum observed in some large developed economies weakened towards the end of 2015.
FDI flows to the least developed countries (LDCs) rose by 33 per cent to a record high of $35 billion. In Asia, prospects of deeper economic integration in the ASEAN region spurred FDI in the Lao People’s Democratic Republic and Myanmar. FDI flows to Bangladesh hit a record high. Firms from China have become the largest holders of FDI stock in the LDCs, ahead of the United States.
FDI to LDCs as a whole is expected to decrease in 2016, reflecting the continuing lull in FDI to a large number of African economies relying heavily on natural resources. Nevertheless, some major FDI recipients in the group, such as Bangladesh, Ethiopia and Myanmar, are likely to see a rise in their FDI inflows in 2016.
In the landlocked developing countries (LLDCs), FDI flows fell for the fourth consecutive year to $24.5 billion – a drop of 18 per cent. Transition economy LLDCs accounted for the fall, particularly Kazakhstan, where flows halved. Inflows to the African subgroup also declined, while FDI flows to Asian LLDC economies increased by more than a quarter. In spite of low commodity prices, Asian State-owned firms have been increasingly involved in Central Asia’s primary sector. Developing country investors, in particular from China, are holding an increasing share of FDI stock in LLDCs, as they do in LDC economies.
Looking ahead, a surge in the value of announced greenfield investments in the LLDCs provides grounds for optimism. FDI flows to LLDCs, in particular the transition economy subgroup, are expected to increase if large privatization plans materialize.
FDI flows to the small island developing States (SIDS) dipped by 32 per cent to a five-year low of $4.8 billion. Reduced investment by energy firms contributed to a contraction in FDI flows to Trinidad and Tobago, the largest FDI host in the group. In Africa, FDI flows to Mauritius fell by 50 per cent, while in Asia and Oceania, the drop in FDI to Maldives and Fiji was less significant. Developing and transition economies now account for the majority of the top 10 investors in SIDS.
FDI prospects in SIDS remain subdued, owing to the lack of large-scale investments in extractive industries and construction. This, however, can be easily overturned by a single investment in, for example, liquefied natural gas or a resort complex project.